SAN FRANCISCO -- What exactly is the cloud, and why should
a company want to go there? That was the question put to four tech
executives on a panel here at the Web 2.0 Summit Thursday.

Cloud computing, the sexy name for Web-based applications, is a
hot topic that's been heating up even more recently following Microsoft's announcement
of Azure, a platform for hosted applications and services.

When moderator and conference organizer Tim O'Reilly asked Marc
Benioff, CEO of Salesforce.com (NYSE: CRM), what he thought about Azure, Benioff got a chance to deliver one of his characteristic zingers against a competitor:

"You mean A-Zune? It's great that they're coming in and saying they're going to have something someday, because our customers need to know this is real." He added that despite the penetration of his company's offerings and others, many enterprise customers are still leery of hosted software, aka, software-as-a-service, aka, SaaS, aka, software in the cloud.

But what kind of margins can cloud-services vendors expect,
O'Reilly asked, now that online storage has become a commodity,
thanks to everyone from Amazon to Google to Yahoo.

Kevin Lynch, CTO of Adobe Systems, (NASDAQ: ADBE) said his company is
well-positioned with Flash and Air, two applications that are widely
used as an interface for Web-based apps. And more recently, the
company has put both PhotoShop and Acrobat on the Web.

"Pure storage or pure processing will be lower-margin businesses,"
said another panelist, Paul Maritz, the CEO of VMware. "Companies used to higher margins in the software business will have trouble." There are two ways companies can differentiate themselves, he said. A company can be truly different, or it can provide a platform and allow an ecosystem to develop around it.

Do margins matter?

"Margins don't matter," argued Dave Girouard, general manager of
Google's Enterprise division. "Margins come from a differentiated product." When
O'Reilly noted that many Google (NASDAQ: GOOG) offerings don't make money, he replied that just because it costs Google to provide an application
now, over time, they'll figure out a way to monetize them.

But the proliferation of cloud-based applications and services
could lead to Balkanization of the Web on the server side, Adobe's Lynch
noted. "Suddenly, the cloud is a risky juncture in terms of business
continuity."